August 2nd, 2018

Daily Market Commentary

Canadian Headlines

• Canadian stocks fell as investors digested another escalation in trade rhetoric between the U.S. and China, while technology shares dropped to the lowest level since May. The S&P/TSX Composite Index lost 57 points, or 0.4 percent, to 16,376.77. The tech sector led the drop again, losing 1.5 percent even as U.S. counterparts gained. CGI Group Inc. slid 3.3 percent, the most since 2016, after results missed estimates.
• Justin Trudeau’s popularity among voters faces a fresh test after the U.S. left his top diplomat out of recent Nafta talks with Mexico. While the Canadian prime minister does well in opinion polls when taking on President Donald Trump, he also knows he needs to dispel the perception he’s more about flash than substance. Both factors will be in play as Canada responds to the Trump administration’s new focus on talks with Mexico.
• BCE Inc. reported sales and profit that missed analysts’ estimates, even as Canada’s largest communications company added more wireless contract customers than expected. In the second quarter, operating revenue at BCE rose 1.7 percent to C$5.79 billion. That falls shy of the expectation for C$5.81 billion, the average of 11 analyst estimates. Adjusted profit was C$0.86 a share, trailing the average analyst estimate of C$0.89.
• Bombardier Inc. burned through less cash than expected in its last quarter as the majority owner of the C Series jetliner, buoyed by rising sales of aircraft parts and rail equipment. Revenue rose in the second quarter and Canada’s largest aerospace company reported a surprise profit, according to a statement Thursday. Bombardier also confirmed its sales, earnings and cash-flow targets for 2018 and 2020.
• Toronto-Dominion Bank has bridged the gap to Royal Bank of Canada after years of the latter’s dominance in Canadian fixed income, a Greenwich Associates survey of investors showed. The capital markets arms of Canada’s largest lenders are tied atop a ranking of dealers prepared by the Stamford, Connecticut-based research firm after conducting 190 interviews with 81 institutional investors active in Canadian fixed income. RBC Capital Markets ranked higher in estimated market share, while TD Securities came first in the so-called Greenwich Quality Index, which measures relationship quality.
• Jones Lang LaSalle Inc. acquired Northwest Atlantic Inc., a Canadian retail-tenant representation and advisory firm, to feed the growing demand from retailers around the world looking to expand in Canada. Northwest Atlantic, a closely held company based in Toronto, represents more than 65 retailers including fashion retailer Nordstrom Inc., discount-apparel company Winners and movie-theater operator Cineplex Inc., and has helped leased more than 75 million square feet (7 million square meters) of retail real estate across Canada.

World Headlines

• European stocks sank for a second day, mirroring a sharp pull-back in Asian shares, as the prospect of higher U.S. tariffs on Chinese goods looked increasingly likely, hammering cyclical sectors such as mining and autos. The Stoxx Europe 600 Index retreated 0.7 percent, after falling 0.5 percent on Wednesday.
• A sell-off in Asian stocks spilled over into U.S. futures and European equities on Thursday as the Trump administration’s latest threats to free trade rattled markets. The dollar climbed and bonds were mixed with central bank policy high on the agenda. Futures on the Dow, S&P 500 and Nasdaq fell.
• Chinese equities extended their declines Thursday, as concern over a trade dispute with the U.S. continued to weigh on some of the world’s worst-performing stock indexes this year.
• Oil traded near $68 a barrel after sliding for two consecutive sessions as rising U.S. inventories and higher output from OPEC and Russia weighed on the market. Futures in New York were little changed, following a 3.5 percent slide in the past two sessions. U.S. government data Wednesday showed a surprise gain in nationwide stockpiles. Meanwhile, the Organization of Petroleum Exporting Countries’s July output climbed as Saudi Arabia pumped near-record volumes while Russia boosted production to levels not seen since it joined the cartel in a coordinated cut in January 2017.
• Gold gains as equities are shaken by trade worries, and after Fed left rates unchanged at its Wednesday meeting and stuck with its plan for gradual hikes. Focus now shifts to BOE’s rate decision later Thurs.
• The Bank of England lifted its benchmark interest rate to the highest since 2009 and policy makers put on a united front to say that further tightening will be needed to rein in inflation. While the move was widely anticipated, few economists predicted the Monetary Policy Committee to close ranks behind the move with Brexit on the horizon. It unexpectedly voted 9-0 to lift the rate to 0.75 percent, the second quarter-point move since November.
• The U.S. economy probably added jobs at a healthy clip again in July. Just don’t expect wages to break out of their holding pattern. As near-record vacancies continue to draw in workers and fiscal expansion supporting consumer demand and business investment, payroll gains have averaged 215,000 per month in 2018. That’s exceeded expectations in a tightening labor market where unemployment claims hover near a five-decade low and companies complain of a lack of workers. Yet the data keep providing evidence of unused capacity, and wage growth has failed to reach the highs seen just before the last recession.
• Walmart Inc. set aside nearly $300 million last fall for a possible resolution with the U.S. government over international bribery allegations, a sign that an end to the years-long investigation was imminent. But eight months later, the sides are deadlocked, three people familiar with the matter said. It’s not about the money: One source of tension is prosecutors’ insistence that Walmart, the world’s largest retailer, admit to certain misconduct as part of any deal, one of the people said.
• Apple Inc. may not have surpassed $1 trillion in market value in the wake of this week’s solid results, but it remains the world’s biggest company — for now. The iPhone maker’s shares jumped to $201.50 on Wednesday, leaving it about $27 billion short of the milestone. At that price, Apple is still holding on to its ranking as the largest firm on Earth, for a seventh year, trailing only General Electric Co. for time at the top. GE’s two runs during the 1990s and early 2000s totaled 11 years.
• BMW AG warned that trade tensions could drag on profits in the coming months, squeezed by power politics between China and the U.S. The manufacturer said any higher tariffs could mean it will longer meet a goal of making a profit at the same level of a year ago. A host of car companies — including top rival Daimler AG — have cut financial targets as global trade tensions escalate and raw material prices increase.
• Russia boosted oil production to levels not seen since it joined OPEC in a coordinated output cut, helping the group offset supply disruptions elsewhere. The world’s biggest energy exporter raised production last month to 11.215 million barrels a day, a jump of 148,000 barrels from a month earlier and just below the post-Soviet record set in October 2016, according to government data emailed Thursday. The country is currently forecasting output will remain at these levels in the next five months, a government official said, asking not to be named as the information isn’t public yet.
• Commercial real estate firm Cushman & Wakefield Plc raised $765 million in its initial public offering, pricing its shares at the midpoint of its targeted range. The firm sold 45 million shares for $17 each after offering them for $16 to $18 apiece, according to data compiled by Bloomberg. Cushman & Wakefield, whose owners include private equity firms TPG and PAG Asia Capital, has said it will use the proceeds to reduce debt and for general corporate purposes.
• Teva Pharmaceutical Industries Ltd.’s turnaround showed further signs of progress under cost-cutting Chief Executive Officer Kare Schultz as the world’s largest generic drugmaker raised its annual profit outlook, boosted by sales of its treatment for multiple sclerosis. Profit excluding some items for the year will be between $2.55 a share to $2.80 share, the Israeli drugmaker said Thursday in a statement. The company had earlier forecast a range of $2.40 a share to $2.65 a share.
• Altice Europe NV fell the most in more than eight months after billionaire Patrick Drahi’s phone company laid bare the cost of recent broadband and mobile subscriber growth, underscoring concerns over its 32 billion-euro ($37 billion) debt pile. The carrier’s flagship French business, SFR, added 211,000 mobile subscribers, which it chalked up to network investments and better customer service. The gains came at the cost of higher spending on acquiring and keeping clients, however. The company predicted free cash flow for its French unit at the low end of its forecast of 1.5 billion euros to 1.6 billion euros.
• DowDuPont Inc. got a hand from Mother Nature as farmers rebounded from a sluggish beginning to the U.S. planting season. Sales in the seeds and pesticide division jumped 25 percent in the second quarter, DowDuPont said in a statement Thursday as it reported earnings. That helped push total revenue up 17 percent to $24.2 billion, ahead of analysts’ expectations.
• Hong Kong tycoon Victor Li’s two main companies posted higher earnings in the first half, giving the head of the CK group of companies a positive start to his tenure after taking over from his famed father. Net income at flagship CK Hutchison Holdings Ltd. rose 13 percent to HK$18 billion ($2.3 billion) in the six months ended June, while CK Asset Holdings Ltd.’s underlying profit increased 20 percent to HK$12.1 billion, according to the companies on Thursday. Li, whose father is Hong Kong’s richest man, became chairman of both firms in May.
• HNA Group Co., the Chinese conglomerate that’s reversing a global acquisition spree, is examining options for its Avolon Holdings Ltd. aircraft-leasing business, according to people with knowledge of the matter. The Chinese group has sounded out potential buyers for a stake in the business or some of Avolon’s aircraft, said the people. Potential suitors that have held talks include companies controlled by the families of Hong Kong billionaires Li Ka-shing and Henry Cheng, they said, asking not to be identified. Discussions are at a preliminary stage and may not lead to a deal, the people said.
• Chinese conglomerate Legend Holdings Corp. is among companies considering bids for a majority stake in Spanish frozen-seafood seller Grupo Iberconsa, people familiar with the matter said. The Beijing-based firm has been speaking with advisers about a possible offer, according to the people, who asked not to be identified because the details are private. Pamplona Capital Management is also weighing a bid for Iberconsa, which could be valued at about 600 million euros ($698 million), the people said.
• Axa SA is in exclusive talks to sell a unit that distributed retirement products to Cinven Ltd. as private-equity firms step up their interest in insurance assets. The Paris-based insurer expects total cash proceeds of 1.17 billion euros ($1.36 billion) if the deal to sell Dublin-based Axa Life Europe goes ahead. The transaction is expected to be completed by the end of this year or early in 2019.
• KAZ Minerals Plc agreed to buy a Russian copper project controlled by billionaire Roman Abramovich and his partners for $900 million in cash and shares. The Baimskaya mine in Russia’s Far East could cost about $5.5 billion to build and produce for about 25 years, KAZ said in a statement Thursday. The company still needs to finalize financing and potential partnering options, it said.
• Ghana’s banking regulator said it created a new lender through a merger of five insolvent banks as the country sold 5.8 billion cedis ($1.2 billion) in bonds to clear their debt. Bank of Ghana revoked the licenses of Unibank Ghana Ltd., Royal Bank Ltd., Beige Bank Ltd., Sovereign Bank Ltd. and Construction Bank Ltd., Governor Ernest Addison told reporters Wednesday in the capital, Accra. The lenders were among the smallest of Ghana’s 34 previously authorized banks and the merger is part of increasing efforts to avert failures in an industry that has been beset by poor governance and weak lending.

 

*All sources from Bloomberg unless otherwise specified